FINANCIAL STATEMENTS

-written records that convey the business activities and financial performance of a company.
-based on HISTORICAL data; help the users predict the FUTURE.

COMPONENTS OF FINANCIAL STATEMENTS

 STATEMENT OF FINANCIAL POSITION (Balance Sheet)
-reports on a company’s financial positions at A POINT IN TIME.
- presents the summary of ASSETS, LIABILITIES, and NET FINANCIAL POSITION; where the assets
are often referred to as INVESTMENTS and the liabilities and owner’s equity as FINANCING.
 STATEMENT OF CHANGES IN CASH FLOWS (Cash Flow Statement)
-reports on performance OVER A PERIOD OF TIME.
-presents the summary of the firm’s OPERATING, INVESTMENT, and FINANCING cash flows and
reconciles them with changes in its cash and marketable securities during the period.
-ties the INCOME STATEMENT and (previous and current) BALANCE SHEET.
 STATEMENT OF CHANGES IN OWNER’S EQUITY
-reports on performance OVER A PERIOD OF TIME.
-abbreviated form of Statement of Retained Earnings.
-reconciles and presents the NET INCOME earned during a given year, and any cash dividends
paid, with the change in retained earnings between the start and the end of that year.
 STATEMENT OF PROFIT OR LOSS (Income Statement)
-reports on performance OVER A PERIOD OF TIME.
-presents the financial summary of a company’s OPERATING RESULTS during a specified period.
 NOTES TO FINANCIAL STATEMENTS
-EXPLANATORY NOTES keyed to relevant accounts in the statements; they provide detailed
information on the ACCOUNTING POLICIES, PROCEDURES, CALCULATIONS, and TRANSACTIONS
underlying entries in the financial statements.

OBJECTIVES OF FINANCIAL STATEMENTS ANALYSIS.

- The main objective of the financial statement analysis for any company is to provide the necessary
information required by the financial statement users for informative decision making, assessing the
current and past performance of the company, predicting the success or failure of the business, etc.
 Statement of
Financial Position
Beginning (12/31/xxx1)

Asset = Liabilities + Capital

Statement of
Cash Flows Statement of
Statement of Comprehensive Income
(12/31/xxx2) Stockholders’ Equity (12/31/xxx2)
(12/31/xxx2)
Cash Bal Beg + Cash Inflows –
Cash Outflows = Cash Bal End Net Income = Revenue
– Cash Bal Beg = Change in Asset = Liabilities + Capital Earned - Expenses
Cash

Statement of
Financial Position
End (12/31/xxx2)

Asset = Liabilities + Capital